The Corporate & Commercial Law Society Blog, HNLU

Author: HNLU CCLS

  • Zero-Turnover, Zero Liability: Proxy Bidders and the Penalty Gap in Indian Competition Law

    Zero-Turnover, Zero Liability: Proxy Bidders and the Penalty Gap in Indian Competition Law

    BY SHIVAM GUPTA AND PRAYAS DAS, THIRD-YEAR STUDENTS AT NLU,ODISHA

    INTRODUCTION

    When the Competition Commission of India (“CCI”) exposed the strategic deployment of zero-turnover proxy bidders in the landmark Pune Municipal Corporation tender cartel case, it laid bare a critical enforcement vulnerability in state procurement. Conventionally, Indian competition jurisprudence under the Competition Act, 2002 has treated bid-rigging as a harm that is curable ex-post through post-facto investigation and monetary penalties under Section 27. Bid-rigging produces a market tipping effect, similar to the network monopolies created in digital markets, and establishes cumulative incumbent advantages, such as pedigree, scaled infrastructure, and insider influence, which together dissuade any legitimate competition from competing for future procurement.

    Bid-rigging further creates a closed ecosystem in which colluding insiders dominate the bid process and use their knowledge of the bidding process to tip the market for specific government contracts into a state of permanent monopoly. Once the market has tipped into a state of permanent monopoly, the ability to restore competition through robust ex-post enforcement is extremely limited since the structural foreclosure of competition cannot be easily undone. Once colluding parties are discovered and are subject to sanctions, the number of true competitors may have been reduced to the point where there are no longer viable bidders. Thus, bid-rigging not only produces overcharges associated with one procurement but also undermines the fundamental framework needed to create a legitimate bidding process for future procurements. In this article, the authors argue that bid-rigging in public procurement is better understood as a structural marketplace failure that causes permanent distortion. While public procurement is designed to optimize price and quality through competition, it remains uniquely vulnerable to systemic disruption. To address this gap, the discussion is structured in three parts: firstly, it demonstrates how proxy bidding induces market tipping; secondly, it examines the resulting penalty gap under existing turnover doctrines; and lastly, it proposes a shift toward ex-ante tender design and institutional reform.

    ANALYTICAL FRAMEWORK OF COLLUSION: THE PMC CASE STUDY

    The CCI, with its decision in the Pune Municipal Corporation Tender Cartel case (2015), shows how vulnerable the public procurement systems are. On November 10, 2025, the CCI found that Bipin Salunke set up a scheme for bid rigging that used Mahalaxmi Steels and Sanjay Agencies’ entities as proxy bidders to submit complementary and manipulated bids that were inflated between the years 2013 and 2015.

    This investigation highlights some of the limitations of evaluating tender processes based on the number of tenders received as valid competitive offers. Complementary bids establish an artificial price floor for the tender and distort the benchmark used by the procuring entity. Therefore, even though the primary bidder may have appeared to be a real competitor, this determination was based upon artificially created comparisons, not the true value of the market, thereby allowing the cartel to extract excessive profits from public funds.

    THE PENALTY PARADOX: NAVIGATING THE EXCEL CROP JURISPRUDENCE

    Proxy bidding is a significant flaw in antitrust protection. The Supreme Court in Excel Crop Care Ltd v Competition Commission of India (2017) stated that penalties for antitrust violations must be based on relevant turnover or else be proportionate to the offender’s total turnover. In the Commission proceeding against proxy bidders such as Sanjay Agencies and Mahalaxmi Steels, those bidders argued that they had no relevant turnover as there was no activity on the solid waste management market.

    The application of the relevant turnover standard in this case creates an enforcement gap; the bidders that utilised their proxies may not be subject to penalties for their actions or may be subject to disproportionate penalties compared to primary cartel members. The CCI found that proxy bidders would be liable for their involvement in the bid rigging as opposed to their participation in the market. Applying a strict relevant turnover standard to proxy bidders in bid-rigging cases creates a major enforcement vacuum that undermines the statutory purpose of the Competition Act, 2002; which, under its Preamble and Section 18, is enacted to prevent practices having an Appreciable Adverse Effect on Competition and to sustain fair market contestability by allowing non-market facilitators to evade legal liability entirely.

    THE EU “LADDER SYSTEMS” AND FACILITATORS

    The need to find a balance between deterrent and turnover-based penalties can also be seen in EU competition law. According to the 2006 Guidelines on Fines, there is a structured ‘ladder’ system for calculating fines that begins at the undertaking’s turnover in the relevant market and is adjusted for factors such as the seriousness of the infringement, duration of the infringement, and aggravating factors. In addition, the cap for any fine will not exceed 10% of the undertaking’s worldwide turnover to ensure that the fine is proportionate while retaining a deterrent effect.

    A significant development occurred when the Court of Justice in AC-Treuhand AG v European Commission (“AC-Treuhand Case”) upheld the European Commission’s decision to impose calibrated lump sum fines on the undertaking that facilitated the cartel and did not have any turnover in the relevant market. Applying the normal methodology would have resulted in zero penalty for the undertaking. The Court of Justice stated that participation in a product market is not necessary for a finding of liability under Article 101 of the Treaty on the Functioning of the European Union (“TFEU”), and therefore, authorities can deviate from turnover-based methodologies to achieve effective deterrence in cases involving facilitators.

    While the AC-Treuhand case is not binding on the CCI, it offers persuasive support for reading Section 27 of the Competition Act, 2002 expansively- treating turnover as a statutory penalty ceiling rather than an indispensable prerequisite for liability. Thereby permitting lump-sum penalties on facilitators lacking relevant turnover.

    FROM EX-POST TO EX-ANTE: LESSONS FROM THE DIGITAL MARKETS ACT

    The limitations of entirely ex-post penalties are also illustrated by the European Union’s Digital Markets Act (‘DMA’), which marks a paradigm shift from reactive to proactive regulation. Traditional ex post enforcement is typically too slow to recreate market contestability where markets are at risk of tipping; e.g., the investigation in the Google Shopping case lasted 7 years (2010-2017). During those 7 years, the market was tipped in such a way that, when the fine was eventually imposed, it would be impossible for the fine to restore market contestability.

    The DMA takes the position that there are markets that are too weak for post-event regulations to be effective. Instead, it focuses on gatekeepers, meaning large platforms that meet certain user and financial measures, and it will have a pre-existing list of dos and don’ts. The DMA adopts an ex-ante approach to prevent market-tipping, address enforcement delays, and proactively preserves open markets before anti-competitive conduct becomes irreversible. While digital platforms rely on multi-sided network effects and procurement operates as a single-buyer monopsony, both exhibit identical tipping dynamics: repeated bid-rigging creates entrenched incumbent advantages such as artificially inflated contract pedigree, financial capacity, insider access. These acts as insurmountable entry barriers for outsiders. Once honest bidders exit the market due to perpetual foreclosure, ex-post fines cannot revive market contestability. By targeting gatekeepers with pre-existing obligations, the DMA’s core regulatory philosophy (replacing slow ex-post fines with proactive structural constraints) applies with equal force to public procurement to prevent irreversible market tipping before collusive dynamics become permanent.

    A NEW MODEL FOR PROCUREMENT: EX-ANTE TENDER DESIGN

    Embedding transparency requirements into the procurement authority’s system will increase the cost of collusion and deter cartels, enabling proactive market surveillance rather than reactive enforcement. The first mechanism is common-link disclosure, whereby bidders disclose shared directors, major shareholders, prior joint ventures, or common technological infrastructure (i.e., IP addresses), thereby transferring the burden of transparency to participants, similar to compliance models established under the DMA. The second mechanism is certification of independent infrastructure, whereby bidders must certify that they do not share bidding infrastructure (i.e., consultants, financial instruments, etc.). If the certification is false, the bidder will be disqualified and subject to enforcement action. The third mechanism is a warning in tender documents of potential penalties (based on the global turnover of the controlling entity and not just contract value) that proxy bidders or facilitators may incur, thereby deterring proxies from participating. These proposals represent a shift towards preventive market design while ensuring procedural fairness through objective and reviewable disclosures and allowing expert adjudicative bodies to make collusion decisions.

    WAY FORWARD: INSTITUTIONAL COORDINATION AND IMPLEMENTATION

    Indian legislations such as the Rule 149 of the General Financial Rules (GFR), 2017 mandates the use of pre-approval/e-permission arrangements to be integrated within online platforms, e.g., the Central Public Procurement Portal and Government e-Marketplace. Adopting this ‘compliance-first’ methodology can maintain and enforce an obligation from the initial point of entry, as the greatest number of risk factors occur at that point of entry.

    The effectiveness of this will be maximised through efficient communication between the CCI and the various authorities involved in the procurement processes. Even if procurement practitioners  identify any flags indicating non-compliance or anti-competitive behaviour; they do not possess the authority to investigate or act upon the competition issues; They need to refer it to the CCI as per Section 19(1)(b) of the Competition Act, 2002. To address this issue, a framework could be developed for providing information about suspected behaviours to the CCI, to allow for preliminary scrutiny before a full investigation is undertaken.

    It will be necessary to gradually introduce ex-ante disclosures in the highest-risk sectors of procurement to protect against discouraging small bidders from participating. By introducing ex-ante disclosures in phases, the preventative actions taken to promote competition will still continue to be achievable and applicable within the principles of fairness and equity to all participants in public procurement.

    CONCLUSION

    Bid-rigging creates a distortion that can hamper competition in public procurement for the foreseeable future. In cases where individuals are culpable for their participation in a collusive operation, relying on relevant turnover is inadequate as a basis for imposing an appropriate penalty. The establishment of a penalty regime for facilitators of collusion based on global turnover by the CCI closes a significant enforcement gap. By incorporating ex-ante protective mechanisms into the tender design process and developing ex-post adjudication processes, India will be better able to protect market structures while ensuring that the purpose of imposing penalties aligns with the goals of creating and preserving open, fair and competitive markets for the public good.

  • Separating the Watchdog from the Vendor: A Critical Reading of IFSCA’s Fiduciary Segregation Circular

    Separating the Watchdog from the Vendor: A Critical Reading of IFSCA’s Fiduciary Segregation Circular

    BY ANANYASHREE JAISWAL AND SHUBHANJALI KUSHWAHA,

    FIFTH – YEAR STUDENTS AT GNLU, GANDHINAGAR

    INTRODUCTION

    Alternative Investment Funds (‘AIFs’) in the Gujarat International Finance Tec-City International Financial Services Centre (‘GIFT-IFSC’) have emerged as a preferred vehicle for cross-border capital flow into India, offering an environment designed to compete with offshore jurisdictions. The governance architecture of GIFT-IFSC is crucial for attracting capital, along with tax and regulatory incentives. At the heart of this architecture sits an entity called the fiduciary, which is responsible for independent oversight of fund operations and investor protection.

    Independence is meaningful only if it is structurally protected from commercial overlap. In GIFT-IFSC, the same service groups acting as fiduciaries have, in some instances, simultaneously served as the fund administrator to the schemes it oversees. To address the issue of whether the watchdog can be a vendor, the International Financial Services Centres Authority (‘IFSCA’) issued a circular on 10th April, 2026 (‘the Circular’) prohibiting fiduciaries and their associates from providing services including that of fund administration, valuation, audit, and lending or financing services. The Circular is meant to resolve conflicts of interest. However, this piece argues that while the Circular resolves one problem, it leaves behind a cluster of structural, definitional, and market-level questions unanswered, raising the question of whether prohibition alone is sufficient governance.

    STRUCTURAL ISSUE ADDRESSED BY THE CIRCULAR

    The fund management framework of the GIFT-IFSC is governed by the IFSCA (Fund Management) Regulations, 2025 (‘FM Regulations’), which places the Fund Management Entities(‘FMEs’) and the fund managers at the centre of the operations. FMEs are entities that are registered with the IFSCA under the definition in Regulation 2(n) of the FM Regulations; whereas a fund manager is an individual who is appointed by FMEs to manage investments. The fiduciaries are meant to provide independent oversight over the FMEs. Regulation 17(5) of the FM Regulations mandates the fiduciaries to follow the Code of Conduct in Part B of the Third Schedule, which necessitates following high standards of service, due diligence, proper care, and independent professional judgment. They are, in other words, important for the independent oversight of the investor’s interest.

    The problem that the Circular seeks to address is that the GIFT- IFSC, which is the same professional services group offering the trusteeship services, is also offering fund administration, valuation and other services. The issue arising from this is that when the same entity offers both fiduciary and trusteeship services, it could result in fiduciary governance being vitiated. This is now prohibited under Paragraph 3 of the Circular.

    A CRITICAL EXAMINATION OF EXISTING FLAWS

    The SEBI has, under Regulation 23(4) of the SEBI (Alternative Investment Funds) Regulations, 2012, made it a mandate that an independent valuer must carry out the valuation of investments. Further, such an independent valuer should not be an associate of the manager, sponsor or trustee of the AIF, in accordance with Chapter 22 (22.3.1) of the Master Circular for AIFs. This demonstrates that the regulator did not intend for the entity responsible for oversight to also have skin in the game, thus making the judgment of these independent overseers fair. Yet in extending this principle to the administrators, auditors and lenders, the execution of the Circular suffers from three significant gaps undermining its objective.

    PART I: THE GAPS IN EXECUTION

    1. The Absence of a Positive Compliance Framework for Replacement Service Providers

    The issue that lies in the present case is that the Circular merely prohibits without having a certain framework for governing it. Regulation 26 of the FM Regulations, for instance, requires that the valuation of the assets of a scheme be done by an independent service provider, such as a fund administrator, custodian or credit rating agency registered with the IFSCA. While the Circular strengthens independence by eliminating the fiduciary from the pool of eligible valuers, it fails to clarify the standards the replacement service provider is supposed to satisfy, or the mechanism through which the FMEs could ensure that the independent valuer is truly independent.

    1. The Ambiguous Scope of “Associate”

    The most critical drafting issue in the circular is the use of the word “associate”. The prohibition covers the provision of services by the fiduciary entity either directly or through its associate. FM Regulations use the term “associate” in a broader sense, so as to cover entities linked by ownership, control, or common directorships. While the use of the word “associate” remains sound in principle, in practice, the extent of the scope of the word remains ambiguous when used in the context of multi-tiered financial groups.

    For instance, stakeholders pointed out in IFSCA’s 2022 consultation paper on the draft FM Regulations that the 20% threshold in the “associate” definition varies from the 15% threshold under SEBI AIF Regulations. This was sought to cure the misalignment that could lead to the aforementioned uncertainty.

    1. Market Capacity Constraints and the Risk of Consolidation

    Additionally, in 2024, there were 128 registered FMEs and 168 funds registered with IFSCA; however, professional trustee services are only provided by a handful of entities. The Circular fails to engage with the market structure vis-à-vis whether there are sufficient independent trustees to absorb the demand created by this circular. If a circular is unable to monetise through adjacent service revenues, risking consequences such as fewer reliable trustees. Accordingly, the Circular feels more reactive than systemic. It fails to address the lacuna created by the comprehensive fiduciary framework in GIFT-IFSC, including reporting obligations, the manner in which their independence can be demonstrated, and accountability mechanisms.

    PART II: A COMPARATIVE LOOK AT THE EU’S AIFMD FRAMEWORK

    Comparable jurisdictions, such as the European Union, have a more comprehensive approach. Under the EU approach, as part of the duty of an AIF Manager (‘AIFM’) to act fairly and honestly in the best interests of the AIF, they should ensure no extra fee/non-monetary benefit/commission is charged except by the AIF itself; otherwise, they are obligated to disclose such gains to investors, and such gains should be for the enhancement of the quality of services being provided. They are also required to maintain a written conflict-of-interest policy along with a procedure to be followed to prevent and manage such conflicts. The AIFM will also need to ensure that persons involved in conflict-of-interest business have a degree of independence proportionate to the size and activity of the AIFM. Authorised AIFMs are also required to record activities where a conflict-of-interest has arisen/may arise, and the senior management is required to review such records at least once a year. 

    None of this is to say that the Circular is without value. The Circular counters governance conflict in AIF trustees: a clash between their duty to oversee fund compliance and revenue ties to service providers that can cause overpowering of vendor interests to overpower the watchdog function of the trustee. It is indeed a step in the right direction for GIFT-IFSC’s appeal to global investors through strong principles-based regulatory governance. The authors only argue that the circular aims to take corrective steps, but stop early.

    CONCLUSION: THE WORK THE CIRCULAR LEAVES UNDONE

    The Circular takes an unambiguous position – a fiduciary’s watchdog role cannot coexist with commercial relationships that threaten its independence. However, the Circular’s value will remain under scrutiny till subsequent regulatory action closes the gaps it leaves. Meanwhile, three priorities stand out: First, IFSCA should issue definitional guidance on the scope of “associate”, with examples that address multi-jurisdictional group structures so that compliance is uniform and not dependent on interpretative discretion. Second, the Circular requires a positive framework, such as minimum qualification standards for replacement service providers, disclosure obligations at the time of appointment, and a certain mechanism through which the fiduciary affirms the independence of its successors. AIFMD’s requirement for a conflict-of-interest policy requires an authorised AIFM to take reasonable steps to identify conflicts of interest amongst itself, its managed AIFs and the investors or the persons linked to them. Third, IFSCA should proactively assess market capacity. With a small pool of professional trustees serving around 202 registered FMEs, structural consolidation risks undermining the very independence the circular seeks to protect. To bridge the gap, IFSCA can solve trustee bottlenecks by adopting AIFMD II’s framework and allowing conditional cross-border and third-party fiduciary oversight while maintaining strict functional segregation. A prohibition without a structural framework is, at best, a work in progress. The Circular has drawn the line; the task now is to build the road.

  • Termination, Fees, and Finality: Rethinking Section 38 after Harshbir Singh Pannu v. Jaswinder Singh

    Termination, Fees, and Finality: Rethinking Section 38 after Harshbir Singh Pannu v. Jaswinder Singh

    BY MAHAK YADAV AND RISHI VERMA, FOURTH- YEAR STUDENTS AT NLIU, BHOPAL

    INTRODUCTION

    The Supreme Court’s decision in Harshbir Singh Pannu v. Jaswinder Singh marks a crucial turning point in the development of the Indian arbitration law. The judgement addresses a significant question of whether an arbitral tribunal can terminate proceedings when a party defaults on its share of fees. Further, it also examines whether such termination can be revived by the appointment of a new arbitrator. This issue is of high relevance because, if left unaddressed, the party’s refusal to pay arbitral fees can be leveraged to disrupt and derail the arbitral process and thereby undermine the very objective of arbitration, which is to promote party autonomy, speed, and efficiency. Therefore, the Supreme Court’s ruling not only seeks to clarify the scope and applicability of Sections 38(1) and 38(2) of the Arbitration and Conciliation Act, 1996 (A&C Act), but also seeks to strengthen the procedural discipline of arbitration in India.

    This article seeks to briefly analyse the Supreme Court’s ruling and identify potential rigidity in treating non-payment of fees as jurisdictional finality. It also seeks to suggest some refinements by drawing on flexible global practices from the International Chamber of Commerce (ICC), London Court of International Arbitration (LCIA), Singapore International Arbitration Centre (SIAC) and Hong Kong International Arbitration Centre (HKIAC) rules and concludes with how a graduated approach to fee defaults can enhance procedural fairness, arbitral efficiency, and party autonomy in India.

    BACKGROUND 

    The dispute began as a result of a partnership arrangement entered into between Jaswinder Singh (Respondent) and Sukhdev Kaur Grewal (Appellant No. 2) in 2013 for establishing a partnership firm engaged in the healthcare sector. Subsequently, Harshbir Singh Pannu (Appellant No. 1) was also inducted as a partner through another written agreement. The partnership agreement included an arbitration clause, which provided that any dispute or differences arising between the parties would be resolved through arbitration only.

    In 2017, disputes arose over the capital contributions and the management of the firm’s affairs. Consequently, the Appellants issued a legal notice to the Respondent, seeking that the partnership be dissolved. The Appellants also invoked the arbitration clause and requested that the Respondent appoint a neutral arbitrator under the partnership agreement. However, due to the absence of any response, the Appellants approached the High Court under Section 11 of the A&C Act, which appointed a sole arbitrator.

    Later, both sides challenged the arbitral fee determination by the sole arbitrator. However, the sole arbitrator rejected the Respondent’s objections and held that Section 38 required both of the parties to share the fees equally. Thus, due to non-payment, the arbitral proceedings were eventually terminated, and thereafter, the appellants sought the High Court’s intervention for the appointment of a new arbitrator, which the court declined. This sequence of events led the matter to be placed before the Supreme Court.

    INTERPRETING TERMINATION: UNIFORMITY ACROSS SECTIONS 25, 30, 32 AND 38 

    The court mainly dealt with three issues: firstly, omission of the expression “Mandate of the Arbitral Tribunal” in Sections 25, 30, 38; Secondly, Interplay of Sections 25, 30, and 38 with Section 32; and thirdly, Use of Section 11 as a curative or revival provision.

    1. THE OMISSION OF THE EXPRESSION “MANDATE OF THE ARBITRAL TRIBUNAL” IN SECTION 25, 30, 38 DOES NOT ALTER THEIR TERMINATION EFFECT

    The court held that it does not agree with earlier judgments such as SREI Infrastructure and Sai Babu, which treated termination under Section 25(a) as fundamentally different from termination under Section 32(2). In both cases, it was held that in Section 25(a) only the proceedings come to an end, whereas in Section 32(2) the mandate of the arbitral tribunal also gets terminated. Thus, unlike Section 25(a), no option of recall would lie in cases covered by Section 32 of the A&C Act. In the present case, the Court clarified that the requirement of “sufficient cause” in Section 25(a) only governs when the tribunal may terminate proceedings; it does not change the nature or effect of the termination once ordered.

    Further, by relying on the UNCITRAL Model Law’s drafting history, the Court noted that “sufficient cause” applies to all situations under Article 25 and merely regulates the tribunal’s discretion. Thus, the Court held that the phrase “mandate of the arbitral tribunal shall terminate” in Section 32 is only descriptive of the tribunal’s role and authority. Its inclusion does not mean that termination under Section 32 is different in substance from termination under other provisions, because in all cases, once proceedings are terminated, the tribunal’s authority to continue adjudication necessarily comes to an end.

    • THE INTERPLAY OF SECTIONS 25, 30, AND 38 WITH SECTION 32.

    The court clarified that although the phrase “terminate the proceedings” is present in Sections 25, 30, and 38, it does not grant termination rights on its own. In the case of Lalitkumar v. Sanghavi, it was held that Section 32 of the Act is comprehensive and applies to all situations in which arbitral proceedings are terminated under the A&C Act. Similarly, by relying on Datar Switchgear, the court reiterated that the phrase “terminate the proceedings” in Sections 25, 30, and 38 of the A&C Act, respectively, only refers to the termination power enshrined in Section 32(2) of the A&C Act. Therefore, the court observed that even though Sections 25, 30, 32, and 38 of the A&C Act deal with different situations in which arbitral proceedings may come to an end, they all share the same outcome.

    • EXHAUSTION OF ARBITRAL REFERENCE AND THE INAPPLICABILITY OF SECTION 11

    Furthermore, the Supreme Court also clarified that Section 11 cannot be invoked as a curative or revival provision. It relied on landmark cases such as Maharashtra State Electricity Board v. Bharat Heavy Electricals Limited, where it was held that the A&C Act is a complete code in itself and the courts have no power under Section 11 to entertain a second request for appointment of an arbitrator unless the order terminating the proceedings is set aside. Thus, it held that once arbitral proceedings have been validly terminated under Section 32(2), it exhausts the arbitral reference and renders the tribunal functus officio. In essence, the court held that the termination under Section 38 ends the entire arbitration, not merely the arbitrator’s mandate. This means the parties cannot invoke Section 11 again or seek a fresh arbitrator. Their only remedy is to challenge or seek a recall of the termination order itself. Thus, the court seeks to reinforce the point that when the parties fail to act in accordance with the procedural boundaries, the law will not support them unjustly.

    CRITIQUE: CONFLATION OF NON-PAYMENT WITH JURISDICTIONAL FINALITY

    The Supreme Court in this case provides an important clarification regarding the end of the arbitral tribunal’s mandate. However, the court’s approach to non-payment of fees under section 38 raises concerns when compared to international practices. The court states that non-payment results in consequences similar to termination under section 32. This means the tribunal will no longer have the authority to decide the matter if the parties do not pay the fees. By supporting this interpretation, the court is prioritizing formal certainty over flexibility and the autonomy of the parties. 

    The ICC Arbitration Rules, 2021, take a broader view of this situation. Under Article 37, the ICC sets up an advance on costs and also allows the non-defaulting party to pay the defaulting party’s share. However, if the payment is not made, there is no immediate termination of the tribunal’s mandate. Instead, the secretary-general, after consultation with the arbitral tribunal, can suspend the work rather than terminating the mandate and can set up a timeframe of not less than 15 days to comply with the payment obligations. And if the party fails to comply, their claims will be considered as withdrawn, but it doesn’t prevent them from raising the same claims in another proceeding. This approach considers that non-payment can be fixed rather than immediately terminating the tribunal’s mandate.

    The LCIA Rules, 2020, take a similar approach. Article 24.8 does not mandate termination of the tribunal’s mandate even if non-payment persists; rather, it allows for withdrawal of the defaulting party’s claim or counterclaim. This withdrawal is not final and is subject to terms that allow reinstatement when payment is made. This read with Article 22.1(xi) makes it clear that LCIA treats non-payment as a procedural default that does not automatically terminate the tribunal’s mandate, and termination is treated as the last resort. 

    The SIAC Rules, 2025, address non-payment in a detailed way. Rule 56.5 empowers the registrar to order the tribunal or the SIAC secretariat to suspend the proceedings in part or in whole. They are also empowered to set a time limit on the expiry of which the claim will be considered as withdrawn, but this withdrawal does not operate as final, and the proceedings can be revived if payment is made. Further, Rule 43.3 makes it clear that non-payment leads to termination only when an institutional decision determines that further continuation is not warranted. This framework suggests that non-payment doesn’t automatically terminate the mandate.

    The HKIAC rules, 2024, show reluctance to outrightly end the tribunal’s mandate due to non-payment. Article 41.4 allows the arbitral tribunal to suspend or terminate the arbitration. Alternatively, the tribunal can choose to move forward with claims or counterclaims at its discretion. The position in India after Pannu differs from this clear decision to move forward, even if payment is not made. 

    This comparative analysis shows a clear preference for gradual actions regarding non-payment instead of quickly ending the tribunal’s authority. Institutional rules like ICC, SIAC, LCIA, and HKIAC emphasize suspending proceedings, setting deadlines for compliance, and allowing payment by the non-defaulting party. They also permit withdrawing claims or counterclaims without prejudice. Terminating the tribunal’s mandate is seen as a last resort under these rules, taken only after confirming that ongoing proceedings are not feasible. 

    In this situation, the approach in Pannu appears more rigid. These ruling speeds up the process of ending the tribunal’s mandate and overlooks the key procedural safeguards. This differs from international practices that suggest non-payment can be resolved instead of immediately terminating the mandate. This comparison shows that it is not always important to sacrifice flexibility in order to establish clear rules in arbitration. The handling of fee defaults in India could be revised so that termination does not become the norm. 

    THE OPTIMAL JURISDICTIONAL MODEL AND ITS ADOPTION IN INDIA

    A comparative reading of the ICC, LCIA, SIAC, and HKIAC frameworks reveals a consistent institutional preference for graduated responses to fee defaults over automatic termination of the tribunal’s mandate. Of these, the SIAC Rules, 2025, present the most balanced framework. Under Rule 56.5, the Registrar may suspend proceedings, set a payment deadline, and deem claims withdrawn only upon non-compliance, with revival remaining possible upon subsequent payment. When read alongside Rule 43.3, the SIAC framework strikes the most coherent balance between procedural discipline and party autonomy. The ICC, LCIA, and HKIAC rules, while protective of the tribunal’s mandate, either lack sequential clarity or vest excessive discretion in the tribunal without a structured escalation path.

    India would benefit from adopting a graduated framework modelled on the SIAC Rules. The ruling in Harshbir Singh Pannu conflates a financial default, which is inherently curable, with a jurisdictional event of permanent finality, depriving parties of any intermediate recourse and creating an asymmetry where fee withholding can be weaponised to frustrate proceedings. A graduated statutory mechanism would address this structural gap while preserving the procedural discipline the Court sought to enforce.

    India can adopt this through legislative amendment or institutional rule reform. Section 38 could be amended to introduce a mandatory suspension period upon non-payment, during which the non-defaulting party may advance the defaulting party’s share, with termination contingent upon the expiry of that period. Alternatively, institutions such as the Mumbai Centre for International Arbitration (MCIA) and the Delhi International Arbitration Centre (DIAC) could incorporate rules modelled on SIAC Rule 56.5 without requiring statutory intervention. Either route would allow India to retain the procedural certainty endorsed in Pannu while aligning with the globally accepted principle that non-payment is a curable default, not an irreversible jurisdictional event.

    CONCLUSION

    The decision in Harshbir Singh Pannu v. Jaswinder Singh provided much-needed clarity to an area of uncertainty that has existed in Indian Arbitration law with respect to the consequences of termination of arbitral proceedings. By ruling that the termination of an arbitration under Section 38 will have the same effect on the proceedings as if the arbitration were terminated under Section 32, the court has reinforced procedural clarity and has curtailed the possibility of parties using strategic non-payment as a means of delaying the arbitration indefinitely. This helps in reinforcing the integrity of the process of arbitration and in delineating the statutory limits of judicial intervention.

    However, the comparative analysis demonstrates that certainty does not necessarily require the sacrifice of flexibility. International arbitral regimes consistently treat non-payment of fees as a procedural difficulty capable of being addressed through suspension of proceedings, conditional withdrawal of claims, close institutional supervision and revival mechanisms. Termination of the tribunal’s mandate is ordinarily treated as a measure of last resort. While the approach adopted in Pannu is internally consistent with the scheme of the A&C Act, it departs from this graduated framework model by conferring immediate jurisdictional finality to a financial default.

    Thus, as India continues to develop into an arbitration-friendly country, this decision opens the door to greater consideration of the treatment and regulation of arbitral fees within Arbitral Proceedings. A recalibrated statutory or institutional approach aligning with international best practices can help in providing similar levels of certainty achieved by the judgment while, at the same time, helping in promoting the procedural flexibility and fairness.

  • Harmonisation at What Cost? Investor Protection and SEBI’s Securitisation Amendments

    Harmonisation at What Cost? Investor Protection and SEBI’s Securitisation Amendments

    BY SAHIL SINGH AND PRIYASHA PRIYADARSHNI, FOURTH- YEAR STUDENTS AT CNLU, PATNA

    INTRODUCTION

    The Securities and Exchange Board of India’s (‘SEBI’) recent consultation paper on the SEBI (Issue and Listing of Securitised Debt Instruments and Security Receipts) Regulations, 2008 (‘SDI Regulations’), aims to bring its securitisation regulations in line with the Reserve Bank of India’s (‘RBI’) Master Direction on Securitisation of Standard Assets, 2021. At first glance, the exercise appears sensible, essential, and for good reason. The regulatory differences have been a recurring issue in the past, where some securitisation transactions that meet the RBI criteria are unable to be traded on the listed market. Greater harmonisation will lead to lower costs of compliance, wider market participation and a wider securitisation market.

    However, the consultation paper poses a deeper question: can regulatory harmonisation do away with protections that tackle risks specific to investors in securitisation? This piece argues that a few of the suggested amendments are based on an implicit premise that the investor protection mandate of SEBI can be standalone, and RBI supervision can fill the gap. Since many of the same market participants are regulated by both RBI and SEBI, but with different objectives, the proposed changes, therefore, could lead to a decrease in investor protection as they exist only for investors in securitised instruments.

    The piece substantiates this claim across three key areas where the consultation paper most visibly substitutes regulatory trust for structural safeguards. It first examines the proposed concentration limit and disclosure shift for single asset securitisation, then turns to the board representation and same group transaction proposals, and finally addresses the removal of winding up as a remedy on trustee replacement. It concludes that harmonisation need not come at the cost of investor protection if the two are recalibrated rather than retreated from.

    THE FALSE DICHOTOMY BETWEEN PRUDENTIAL REGULATION AND INVESTOR PROTECTION

    A common thread in the consultation paper is that it assumes that some of the safeguards under the SDI Regulations are redundant if the originator is already regulated by the RBI. The rationale behind proposals regarding concentration limits, disclosure requirements, governance requirements, same group transactions and trustee replacement rests squarely on this assumption. However, it ignores the very differing aims of the two regulators.

    The objective of the supervisory framework of the RBI is mainly focused on the safety and soundness of the regulated entities and systemic stability. However, unlike the RBI, investor protection and market integrity are the focus of SEBI. While often these objectives are similar, they are not synonymous. Concentration, governance, disclosure and conflict of interest risks may still arise for investors, even in a transaction in which the bank or non-banking financial company  has no prudential concerns. Fulfilling RBI requirements, therefore, does not imply compliance with SEBI’s safeguard concerns. The underlying problem in the consultation paper is the idea that regulatory supervision of the originator can take the place of structural protections for the investor in a securitised instrument.

    ISSUE OF ACCOUNTABILITY GAP AND CONCENTRATION RISK

    The most obvious demonstration of the underlying logic of the consultation paper is the suggestion that no one obligor be more than 25 per cent of a pool in a securitisation. The proposal is aimed at enabling listed single asset securitisations, but it combines two issues. Concentration limits deal with the risk profile of the securitised instrument, while the track-record requirements address an originator’s credibility. While a loan might be a good addition to a bank’s diversified portfolio, it can also be a major risk if it is the only asset on which a securitisation instrument is based. Investors don’t receive the originators’ benefit of diversification, and they are only exposed to the underlying asset.

    The problem of concentration risk is not one that is related to the status of the originator, but the makeup of the asset pool. This is consistent with the RBI’s Committee on the Development of Housing Finance Securitisation Market’s Report, which identified pool composition and asset concentration, rather than the originator’s regulatory status, as the key determinants of investor risk in Indian securitisation transactions. The proposal does not reduce the concentration limit and does not add significant safeguards, so there is a risk that it will fail to provide meaningful investor protection and will fall short of providing substantive safeguards.

    The same concern comes about in the proposed change to the periodic disclosure requirements to the servicer from the originator. The change is logical from an operational perspective as servicers have access to the latest data on collections, defaults and asset performance. The question is not, however, who is making the disclosures, but who is liable if those disclosures are false. While the consultation paper reiterates that the originator is responsible overall to the investor, there is little clarity about liability, investor remedies or accountability. This concern is compounded by the nature of the framework based on the trustees’ and auditors’ certifications, which provide modestly independent verification. The proposal thus tackles a shortcoming of the system, without resolving issues about liability and investor protection.

    For instance, in Jyoti Khemka v. Catalyst Trusteeship Limited and Ors., 2023,  the debenture trustee i.e. Catalyst Trusteeship was held liable by the consumer forum for failing to safeguard investors despite the originator Dewan Housing Finance Corporation Limited (‘DHFL’) being RBI-regulated, confirming that prudential oversight of the originator doesn’t resolve who is accountable to the investor when disclosures prove unreliable.

    GOVERNANCE INDEPENDENCE AND THE LIMITS OF REGULATORY TRUST

    This misplaced reliance on regulatory trust extends to the proposals concerning representation of the board and on the same group securitisation transactions. SEBI suggests that RBI-regulated originators be allowed to have only one representative on the special purpose distinct entity (‘SPDE’) board with no veto powers. This does seem to enhance independence, but influence in corporate governance is not solely based on formal voting rights. An originator’s representative can have a strong influence even if they do not have a veto, since they have informational advantages, authority for agenda-setting, and institutional relationships. In Vishal Ahuja v. SEBI, 2024, the Supreme Court declined to disturb the position established by the Securities Appellate Tribunal, which upheld liability on independent directors for lapses tied to their board committee roles. This suggests that a board seat carries influence independent of veto power and is unlikely to be treated as governance-neutral.

    The proposal also introduces an undesirable bifurcation by subjecting RBI-regulated entities to heavier governance controls than non-regulated originators. This distinction is misguided, as the desirability of a governance control should be driven by incentive structure and not by mere regulation.

    The idea of allowing securitisation transactions by originators regulated by the RBI on a like-for-like basis is based on a similar assumption. Many restrictions are in place to maintain the concept of arm’s-length dealing by restricting common control transactions. The consultation paper seems to believe that the issues of related-party transactions are adequately managed by the RBI. But it is for this reason that there are structural safeguards when there is a possibility of conflicts of interest, even though all parties are regulated. An originator may also be incentivised to sell assets to the group on terms more favourable to the group, and to transfer these risks to the investors.

     These incentives do not go away when there is prudential supervision. Mechanisms like independent trustees, arm’s length pricing and governance separation, however, have been used in the past to tackle agency issues directly and complement the role of regulation. The consultation paper proposes to relax these protections, which could allow the regulator to replace the structural protection with a trust-based approach, but it fails to provide a strong enough rationale for transferring the protection from structure to trust.

    INVESTOR PROTECTION AND THE PROBLEM OF TRUSTEE REPLACEMENT

    The proposed changes in relation to the replacement of trustees are part of the move to allow for a continuity of transactions. SEBI has come out with a proposal to replace the need for winding up in case of suspension or cancellation of the trustee’s registration with the appointment of another trustee to prevent disruption to the securitisation structures and possible conflict with the RBI’s guidelines on effective buy-backs. The need to replace trustees is often most easily achieved by the appointment of substitute trustees, but the complete removal of winding up is a concern.

    RECALIBRATION RATHER THAN RETREAT

    The consultation paper is in response to the actual problem due to the difference in the framework of securitisation regimes between the RBI and SEBI. However, there is no need to compromise investor protection when harmonising. A more balanced approach would involve rebalancing existing safeguards in place, rather than replacing them completely; relaxing the concentration limits without removing them, moving the disclosure burden to the same group transaction without removing the liability, reordering the remedies, and prioritising the remedy of replacement of trustees over winding up as a remaining remedy. That approach is founded on the principle that prudential regulation and investor protection are complementary goals and that it is important to maintain both, rather than giving one goal priority over the other.

    CONCLUSION

    The SEBI consultation paper is in response to a real issue. The lack of convergence in the regulatory frameworks of the RBI and SEBI has resulted in inefficiencies that hinder the development of the Indian listed securitisation market, and integration of the two regulatory frameworks would help in reducing compliance costs, better market participation and ease of access to capital. But there are certain amendments that seem to have the impression that saving is to be achieved through RBI supervision rather than through the framework of SEBI.

    This is where the consultation paper loses track because the two types of regulation, prudential and securities, have two different purposes. The primary focus of RBI is to help stabilise the institutions, while SEBI’s primary focus is to protect the investors and the integrity of the market. Harmonisation is desirable but should not be at the expense of protections to address concentration risk, accountability gaps, governance conflicts and investor remedies. Without proper protections, the proposed changes could end up making regulatory alignment a regulatory dilution.

  • THE ILLUSION OF LEGAL COMPLETION IN INDIA’S FAST TRACK MERGERS

    THE ILLUSION OF LEGAL COMPLETION IN INDIA’S FAST TRACK MERGERS

    BY PRIYAL BANSAL, FOURTH – YEAR STUDENT AT DR. RAM MANOHAR LOHIYA NATIONAL LAW UNIVERSITY, LUCKNOW

    I. ABSTRACT

    The Fast-Track Merger (‘FTM’) regime under Section 233 of the Companies Act, 2013, was designed to enable quicker mergers without the National Company Law Tribunal’s (‘NCLT’) approval. The introduction of a deemed approval mechanism under Section 233, strengthened through later amendments aims to reduce delays and regulatory burden. However, this shift creates significant practical and legal challenges. The absence of an automatic confirmation process leads to execution gaps, leaving mergers legally approved but operationally incomplete. Further, the framework conflicts with the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeover) Regulations, 2011 (‘SEBI Takeover Regulations’), as Regional Director (‘RD’) approved schemes do not qualify for open offer exemptions. This article analyses these structural issues and proposes targeted reforms to ensure that the FTM regime functions effectively in practic

    II. INTRODUCTION

    The FTM regime in India was introduced in 2013 under Section 233 of the Companies Act 2013 and further implemented through the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 (‘CAA Rules, 2016’). This effectuated mergers for specific classes of companies without the approval of the NCLT. The mechanism, initially intended for start-ups and small companies, was expanded in 2024 to include reverse flipping, in which a foreign holding company may merge with a wholly owned Indian subsidiary under FTM.

    The application has been further expanded owing to the pendency of merger schemes before the NCLT for securing approvals. As of March 2025, over 15,000 cases remain pending. Now, the FTM includes unlisted companies with debts not exceeding Rs. 200 crore and no defaults; holding-subsidiary mergers beyond Wholly Owned Subsidiary structures (‘WOS’), where the transferor is an unlisted company; between subsidiaries of the same holding company; and cross-border reverse flips.

    The Ministry of Corporate Affairs (‘MCA’)      in      2023 revised the process of deemed approval through amendments to Rule 25(5) and (6) of the CAA Rules, 2016. This amendment meant that if the Registrar of Companies (‘RoC’) or the Official Liquidator (‘OL’) failed to furnish objections or suggestions within 60 days, the merger would be deemed approved. However, this idea of accelerating approvals raises deeper questions of enforceability.

    III. THE EXECUTION GAP IN DEEMED APPROVAL

    Under the 2025 amended rules, the 60-day statutory timeline for deemed approval has been maintained. The legal framework provides deemed approval under two circumstances. First, under Rule 25(5), if no objections are received from the ROC or the OL within 30 days and the RD does not issue a confirmation order, the application shall be deemed approved at the end of the 60th day. Secondly, under Rule 25(6), even if objections are received, but the RD neither issues a confirmation nor refers any concerns to the NCLT within 60 days, it is deemed approved again. In both cases, however, the statute still requires the issuance of a formal confirmation order. 

    The Bombay High Court, in Asset Auto India Pvt. Ltd. v. Union of India, clarified that the RD cannot reject a merger scheme outright. If the RD considers a merger scheme to be prejudicial, he must refer it to the NCLT under Section 233(5) of the Companies Act, 2013. Therefore, the deemed approval thus becomes a structural extension of the RD’s limited right to approve the merger scheme.

    However, this deemed approval breaks down at the execution stage. There is no separate mechanism provided for operationalising a confirming order in a deemed approval case that differs from the standard confirmation process under Form CAA-12 (Confirmation order of merger scheme, amalgamation, transfer, or division of undertaking). It is a statutory confirmation order issued by the RD that shows      approval of a merger scheme and without it, the scheme cannot be registered regardless of a deemed approval. These fillings and enforcement of merger orders are processed through the MCA-21 portal, which is an e-filing system for corporate filings. It does not automatically generate Form CAA-12 on the 61st day. Instead, the RD must physically sign and upload Form CAA-12 on the portal for a merger to be registered.

    This also produces a self-defeating cycle. One of the primary reasons for introducing deemed approval is the RD’s failure to issue a confirmation order within the 60-day timeline. However, even when approval is deemed by operation of law, the merger cannot be implemented unless the RD issues and formalises it by a confirmation order. This delay also reflects a capacity constraint. There are only 10 RDs nationwide, as against 15 NCLT benches. The RD, who is also responsible for functions such as conversions of private to public companies and shifting of registered offices, has limited bandwidth to process the rising volume of FTM applications within a 60-day window.

    Notably, a substantial revision to Rule 25, notified on 4 September 2025, gave the central government more powers. However, the automatic generation of Form CAA-12 upon expiry of the 60-day period was not introduced.

    This does not end here. Upon receiving this approval order, the company must file      Form INC-28 (Notice of order of the Court or Tribunal or any other competent authority) with the RoC within 30 days of receiving it to formalise the merger. Therefore, as per law, this created a vacuum state, where, in theory, the scheme is deemed approved, but the merger remains ineffective until a formal confirmation order is passed. In this stage, the order remains an inoperative finality, meaning it is legally recognised but not enforceable. For instance, the transfer of immovable property may not be recognised by the sub-registrar as a valid conveyance in the absence of such an order.

    This gap is further aggravated by the lack of clarity on whether the 60-day clock pauses when the RD raises queries or seeks clarification from the companies about the scheme. This absence of a defined regime for when to pause and when to resume would thus lead to unpredictability and inconsistent practices. These issues may lead companies to abandon the FTM mechanism or to refill      under Section 232 of the Companies Act, 2013 through NCLT.

    IV. THE OPEN OFFER TRAP IN FTM

    Another inconsistency is apparent under the SEBI Takeover Regulations. Regulation 3 requires a mandatory open offer to public shareholders when a person acquires 25% or more of the shares. This protects the minority shareholders. However, if the merger scheme is already approved by law, this exercise becomes redundant.

    Therefore, Regulation 10(1)(d)(ii) exempts acquisitions, including mergers/demergers and amalgamations, by an order of a “court or a tribunal” from making an open offer. But it only exempts orders from the court and tribunals, and the earlier phrase “or a competent authority”, which would have included RD’s approval, was removed in 2019. This was targeted at overseas mergers approved by foreign regulatory authorities rather than by foreign courts. But the domestic RD approval FTM was overlooked.

    The consequence would thus be that acquisitions under FTM for listed entities trigger a mandatory open offer if they result in a shareholding increase above 25%. This can occur when a listed company merges with its unlisted subsidiary through FTM. Imagine that prior to the merger, the promoter group holds 24% of the listed company. As part of the scheme, shares are issued to the shareholders of the unlisted transferor company in exchange for their holdings in the transferor company. Since the promoter group already holds a significant stake in the transferor entity, the share swap increases the promoter’s shareholding from 24% to 26%. This would now trigger a mandatory open offer obligation. Had it been through NCLT, the same acquisition would not have required an open offer. Now, any benefits FTM offered would be negated by the increased financial and compliance burdens.

    V. CONCLUSION AND WAY FORWARD

    The FTM mechanism undoubtedly has the potential to reduce the burden on NCLT in approving merger schemes. However, the structural drawbacks of opting for FTM over the rudimentary NCLT procedure cannot be overlooked. These concerns persist even when the stringent 90% shareholder approval threshold is met.

    To address these, the MCA should first automate the generation of Form CAA-12 from the MCA-21 V3 portal when 60 days have passed, and no suggestions or comments have been made by the RoC or OL. This would also avoid the discrepancies regarding the transfer of immovable property under such transactions.

    Further, if the RD or the OL asks any questions, the 60-day limit should be suspended until the applicant responds to the queries. However, the rules should explicitly permit only a reasonable extension to avoid misuse of the provision. The timeline can begin again from the date it was seized when the query was raised. 

    Another solution would be to amend the SEBI Takeover Regulations to recognise RD orders rather than re-inserting “or a competent authority”, which would reopen the broader concerns SEBI sought to address in 2019. This would ensure that an order of RD is given equal benefits as that of any other merger conducted through NCLT. These reforms will ensure that inoperative finality is avoided and that what the law promises is delivered.

  • CIIRP’S MISSING MORATORIUM: A STRUCTURAL FLAW UNDER THE INSOLVENCY AND BANKRUPTCY CODE (AMENDMENT) ACT, 2026

    CIIRP’S MISSING MORATORIUM: A STRUCTURAL FLAW UNDER THE INSOLVENCY AND BANKRUPTCY CODE (AMENDMENT) ACT, 2026

    BY KASHVI SHREY, SECOND – YEAR STUDENT AT CHANAKYA NATIONAL LAW UNIVERSITY, PATNA

    I. INTRODUCTION

    The Insolvency and Bankruptcy Code, 2016 (‘IBC’or ‘the Code’) has reshaped India’s approach to insolvency, aiming to strike a balance between creditor recovery and fair treatment of debtors and other stakeholders. At its core, the Code is built on the ideas of value maximisation and equitable, efficient, and transparent processes. In practice, though, the numbers tell a grimmer story. Resolution processes take an average of 602 days, which is nearly double the statutory ceiling of 330 days, and creditors recover roughly 33% of admitted claims. Against this backdrop, the Insolvency and Bankruptcy Code (Amendment) Act, 2026 (‘The Amendment Act’), which received Presidential assent on April 6, 2026, marks a significant shift by introducing the Creditor-Initiated Insolvency Resolution Process (‘CIIRP’) under the newly inserted Chapter IV-A (Sections 58A to 58K) of the Code, as introduced by the Amendment Act.

    The mechanics of CIIRP are relatively straightforward. Section 58B of the amended Code (Initiation of Creditor-Initiated Insolvency Resolution Process) permits a Financial Creditor (‘FC’) belonging to a class notified by the Central Government and holding at least 51% of the financial debt by value to initiate CIIRP by issuing a 30-day notice to the Corporate Debtor (‘CD’). If the default is not resolved within this period, a Resolution Professional (‘RP’) appointed by the initiating creditors makes a public announcement commencing the process. Crucially, the CD’s management is not suspended. It remains in control under a Debtor-in-Possession (‘DIP’) model, subject to the RP’s oversight, with the process running for 150 days, which is extendable up to 45 days.

    The CIIRP, however, contains a structural flaw that undermines these ambitions. Unlike the standard Corporate Insolvency Resolution Process (‘CIRP’), the CIIRP provides no automatic moratorium at commencement. The RP must separately apply to the National Company Law Tribunal (‘NCLT’) for a moratorium after the public announcement of CIIRP, leaving a legally uncovered window during which any creditor may race to the NCLT and trigger a  CIRP petition. Compounding this is the absence of any DIP financing mechanism in Chapter IV-A, leaving management in nominal possession of the enterprise but with no statutory path to working capital.

    II. THE MORATORIUM GAP AND THE RACE-TO-CIRP PROBLEM

    The moratorium under the standard CIRP operates as the structural foundation of the entire resolution process. Under Section 14 of the IBC, an automatic stay on suits, enforcement of security interests, asset transfers, and recovery actions against the CD takes effect immediately upon the NCLT’s admission of a petition.  It ensures that all creditors engage the resolution process simultaneously, preventing any single creditor from obtaining preferential recovery by acting ahead of the others.

    The CIIRP departs from this design. Under Chapter IV-A as enacted, the RP makes a public announcement commencing the CIIRP after the requisite 51% creditor approval under Section 58B. A moratorium does not take effect at that point. The RP must subsequently apply to the NCLT for one, and the moratorium takes effect only upon the NCLT’s order. Between the public announcement and the tribunal’s order, the CD’s assets remain exposed and enforcement actions remain available to creditors.

    This gap creates a specific and traceable risk. Section 11 of the IBC, as amended, bars a CD already undergoing CIIRP from being subjected to a fresh CIRP. The bar, however, operates only once the CIIRP is formally underway and a moratorium is in place. A non-notified Financial Creditor, one ineligible to initiate CIIRP because it falls outside the Central Government’s notified class, retains the right to file an application under  Section 7 (Initiation of CIRP by FC) of the IBC once the public announcement is made, but before any moratorium is granted. Under the mandatory admission mechanism introduced by the same Amendment Act, which now compels the NCLT to admit a petition on proof of debt and default within fourteen days of filing, such a petition is likely to be admitted promptly. Once a CIRP commences on admission, the Section 11 bar activates to protect the CIRP, not the CIIRP, displacing the latter entirely.

    The primary argument against this concern is that the Central Government’s notification of eligible CDs and FCs will be drafted carefully enough to manage the risk. This argument, while understandable, misreads the statutory problem. The notification governs who may initiate CIIRP; it says nothing about when the moratorium takes effect. A non-notified creditor holding a valid claim against a notified CD faces no statutory bar to filing a CIRP petition during the moratorium gap. Until  Section 240 (Power of Central Government to Make Rules) of the IBC is exercised to extend moratorium protection to the moment of the public announcement, or until Parliament amends Section 14 to expressly include CIIRP commencement within its scope, this risk is embedded in the statutory text and cannot be managed away by notification design.

    Of particular relevance in this regard is the approach adopted by the United Kingdom through the Corporate Insolvency and Governance Act, 2020 (‘CIGA’). Part A1 of the Insolvency Act, 1986, as introduced by CIGA, provides a free-standing moratorium that takes effect automatically upon filing, without any separate court application, immediately restraining creditor enforcement actions for an initial period of 20 business days. This automatic protection was specifically designed to prevent the kind of creditor race that the CIIRP’s moratorium gap now invites. When enacting Chapter IV-A, Parliament had the benefit of this model; its decision not to replicate an automatic moratorium is a design choice whose consequences require correction.

    III. THE DIP FINANCING VACUUM

    Even if the moratorium gap were addressed, the CIIRP faces a second structural problem. The DIP model at the heart of Chapter IV-A requires the CD’s management to continue operating the enterprise during the 150-day resolution window, and sustaining operations requires working capital. Securing that working capital during an insolvency process, in turn, requires lenders willing to extend fresh credit to a distressed entity.  The empirical backdrop lends urgency to this concern: as per the Insolvency and Bankruptcy Board of India (‘IBBI’) data as of October 2025, over 2,800 CIRPs have ended in liquidation orders, with average creditor recoveries of approximately 6% of admitted claims in liquidation, compared to 32.76% in resolved cases. This differential underscores the premium that early, going‑concern‑preserving intervention commands, and it is precisely that premium which DIP financing is designed to secure.

     Chapter IV-A contains no provision for such financing. There is no statutory basis for granting priority, let alone super-priority, to creditors who extend credit to a CD during an ongoing CIIRP. A commercial lender asked to extend working capital to such a CD faces the prospect of those advances ranking pari passu with pre-petition debt under Section 53 (Distribution of Assets) of the IBC in any subsequent CIRP or liquidation. The Supreme Court in Swiss Ribbons Pvt. Ltd. v. Union of India held that the IBC is a complete code and that priorities under it are statutory, not equitable; courts will not imply a super-priority that Parliament has not enacted. The IBBI committee report of April 2, 2026, which proposed draft CIIRP regulations to operationalise the new Chapter, addresses several procedural details but does not propose a DIP financing mechanism, confirming that this gap remains live and unaddressed in the regulatory framework as currently proposed.

    Of particular relevance here is the approach adopted in Singapore through the Insolvency, Restructuring and Dissolution Act, 2018 (‘IRDA’). Sections 67 and 101 of the IRDA provide that creditors extending rescue financing to a debtor undergoing a scheme of arrangement or judicial management may, upon court authorisation, obtain super-priority over all other claims and administrative expenses in the event of a subsequent liquidation. Singapore’s Parliament thus recognised that the DIP model is commercially inoperative without a statutory financing incentive. The IRDA model is particularly apt for India’s institutional context: unlike the United States Chapter 11 approach, where DIP financing priority is negotiated contractually and is thereafter confirmed by the court, the IRDA conditions priority on prior judicial authorisation a design that preserves creditor oversight and is structurally consonant with the CoC-centred governance architecture already established under the IBC.

    IV. CORRECTIVE PRESCRIPTIONS FOR SUBORDINATE LEGISLATION

    These gaps are correctable through subordinate legislation before the Amendment Act is brought into force, provided the IBBI and Central Government approach them as structural corrections rather than optional refinements.

    The first and most urgent correction is to extend moratorium protection to the moment of the RP’s public announcement of CIIRP commencement. The Central Government holds rule-making power under Section 240 of the IBC and the IBBI holds regulation-making power under Section 240A (Power of Board to Make Regulations); either authority could be deployed to prescribe an interim stay, co-extensive in scope with Section 14, taking effect from the date of the public announcement and operates until the NCLT’s formal order. The UK’s automatic Part A1 moratorium under CIGA demonstrates that an immediate, filing-triggered stay need not require judicial pre-authorisation to be effective; India’s subordinate legislation can replicate that outcome within the existing statutory architecture. The more durable solution is a Parliamentary amendment expressly bringing CIIRP commencement within Section 14’s automatic moratorium, and the IBBI’s ongoing regulatory process presents the appropriate occasion to recommend this to the Ministry of Corporate Affairs.

    The second correction is the introduction of a CIIRP-specific interim financing provision. The IBBI’s draft regulations should prescribe that advances extended to a CD during an ongoing CIIRP by any lender, whether or not a member of the Committee of Creditors (‘CoC’), shall, upon approval by at least 66% of the CoC by value and NCLT sanction, rank as priority claims ahead of pre-petition unsecured debt in any subsequent CIRP or liquidation. This voting threshold mirrors the one prescribed for approval of CIIRP resolution plans, ensuring that the same majority empowered to approve the ultimate resolution also authorises interim financing on priority terms. Further reinforcing this design, the Singapore model, court-authorised super-priority under Sections 67 and 101 of the IRDA, demonstrates that such a mechanism can be operationalised through regulations requiring NCLT approval as a condition precedent, preserving judicial oversight while creating the commercial certainty that lenders require.

    Lastly, the notification of eligible FCs must extend CIIRP initiation rights to Asset Reconstruction Companies (‘ARCs’) registered under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (‘SARFAESI Act’) and to distressed debt funds that have acquired financial debt through assignment in the secondary market. Confining the notification to scheduled commercial banks would create a sub-classification within the class of financial creditors based on the mode of acquisition rather than the economic character of the claim. The analysis in Swiss Ribbons Pvt. Ltd. v. Union of India, which upheld the financial-operational creditor distinction on the ground that the two classes are intelligibly differentiable in their commercial roles, does not support a further sub-classification within financial creditors that tracks institutional form rather than economic function.

    V. CONCLUSION

    The CIIRP is the most structurally innovative provision the IBC has seen since its enactment in 2016. The DIP model, the compressed 150-day timeline, and the out-of-court initiation framework, each represent genuine advances over the CIRP’s tribunal-dependent architecture. These advances, however, are contingent on scaffolding that the Amendment Act does not presently provide. The absence of an automatic moratorium at CIIRP commencement creates a race-to-CIRP process vulnerability that can collapse the framework before any resolution plan is formulated. The absence of a DIP financing mechanism reduces incumbent management’s role to a formality, depriving the CIIRP of the going-concern preservation it is designed to achieve.

    Accordingly, before the Central Government notifies the commencement date for the Amendment Act, the IBBI’s subordinate legislation must incorporate three targeted corrections: an automatic interim stay operative from the date of the public announcement, on the lines of the UK’s Part A1 moratorium; a CoC-approvable and NCLT-sanctioned priority mechanism for fresh credit, on the lines of Sections 67 and 101 of Singapore’s IRDA; and an FC notification that includes ARCs and  holders of assigned financial debt. Without these corrections, the CIIRP will generate the contested, tribunal-heavy litigation it was specifically designed to avoid.

  • Shriram-mufg: a deal that outmastered the open-offer regime ?

    Shriram-mufg: a deal that outmastered the open-offer regime ?

    BY AMIT KUMAR, FOURTH-YEAR STUDENT AT CHANAKAYA NATIONAL LAW UNIVERSITY, PATNA

    INTRODUCTION

    On its face, Mitsubishi UFJ Financial Group (“MUFG”)-Shriram Finance Limited (the “Company”) arrangement is a headline grabbing largest foreign direct investment of 2025 in financial service sector, a 20% equity subscription that promises capital and governance support. Underneath that neutral form, however, the deal bundles governance covenants, board nomination rights and large promoter payout that when analysed together mirror a transfer of economic and managerial control. This article argues that Securities Exchange Board of India’s (“SEBI”) takeover and listing rules were strained to their formal limits by a deal that preserved technical compliance while raising serious questions about the protection of minority shareholders and the integrity of open offer regime.

    DEAL BACKGROUND

    The deal, between MUFG and the Company, signed and approved by the board of directors of the Company in December 2025, received the greenlight of the shareholders of the Company in the extraordinary general meeting held on 14th January, 2026. After receiving all the regulatory approvals including that of the Competition Commission of India, the Board of the Company approved the preferential allotment to MUFG on 8th April, 2026. Under the deal, MUFG would get the 20% stake in Shriram finance for approx. ₹39,618 crore (around $4.4 billion) by way of preferential allotment. In return, MUFG got the right to nominate two non-independent directors to Shriram Finance’s board. It also got the right to second up to six representatives in the management of the Company which implies that MUFG retains the authority to influence the management, the right which is not available for other shareholders. Along with it, MUFG got the anti-dilution right and reserved matters protections, implying that certain key decisions cannot be taken without the concurrence of MUFG. The deal makes MUFG a strategic investor in the Company and positions MUFG differently in comparison to the other shareholders of the Company and keeps its position above the other shareholders.

    DEAL BACKGROUND

    What makes the deal more noticeable is the separate unusual non-compete fee of $200 million to the Shriram Group’s promoter entity Shriram Ownership Trust (the “SOT”), which is a private discretionary trust established in 2006. The said fee makes about 5% of the deal. This payout brings forth the two critical challenges. Firstly, the payout would go to over 40 beneficiaries of the SOT, rewarding the very management that will continue to be part of the Company. Secondly, Shriram Capital, through which the SOT is holding the shares of the Company, will continue as an investor of the Company. However, the promoters’ stake would come down to 20.3% from 25.39% post the deal. Additionally, the nature of the SOT blurs the distribution of the said fee among over 40 beneficiaries. All these facts imply that it is inconsistent with the traditional purpose of a non-compete clause. Traditionally, a non-compete fee is intended to compensate outgoing promoters for agreeing to refrain from engaging in competing businesses, thereby protecting the acquirer’s investment, goodwill, and market position. Therefore, it necessitates a discussion on such strategic investments, which tick boxes the regulatory requirements but outsmarts the regulatory requirements in substance.

    As per Regulation 8(7) of The Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (the ‘Takeover Code’), the meaning of price adopts a substance over form approach, under which the price paid for shares of the target company is not confined to the consideration reflected in the share purchase agreement. Instead, it encompasses all payments made or agreed to be made for shares, voting rights, or effective control, whether routed through incidental, contemporaneous, or collateral agreement, and regardless of whether such payments are described as control premium, non-compete fees, or any other contractual label. But the current non-compete fee would have fallen under this regulation, had the Takeover Code been triggered based on extant definition of control discussed below.

    Moreover, Regulation 26(6) of the SEBI Listing Obligations and Disclosure Requirements Regulation, 2015 bars side dealings of such nature without the prior approval of the board and the shareholders of a listed entity, which has been complied with and the deal has received the approval of the both in the current deal. Despite formal approval, the non-compete fee effectively operates as a side dealing since it provides an additional, transaction-linked benefit exclusively to the promoters, rather than being part of the main consideration available to all shareholders.

    Further, it may be contended that the non-compete fee payable under the transaction was fully disclosed and approved by shareholders. However, regulatory compliance is not exhausted by disclosure and consent alone. The decisive issue is whether such consideration, notwithstanding its disclosure, constitutes part of the price, paid for acquisition of control. If a non-compete payment, viewed in conjunction with governance rights and strategic covenants, operates as consideration for ceding influence or conferring decisive control, shareholder approval cannot obviate the mandatory obligations under the Takeover code, which are triggered by substance rather than form. Moreover, while a non-compete fee is not illegal per se and is a commonly accepted practice globally, its legitimacy lies in compensating an exiting promoter or investor for relinquishing control and agreeing not to compete with the business. However, this fundamental rationale appears to be absent in the present case, as the promoters are neither exiting the company nor disengaging from its management, and will continue to remain significant shareholders with ongoing involvement in the business. As reported, the payment effectively accrues to a promoter group that continues to run and control the company, thereby blurring the distinction between a genuine non-compete consideration and an additional transaction-linked benefit.

    THE CONTROL QUESTION: REGULATION 4 OF SEBI TAKEOVER CODEe

    The Regulation 3 of the Takeover Code requires an acquirer to make an open offer if it crosses the shareholding threshold limit of 25% or more, or the existing shareholder holding more than 25% makes creeping acquisition of 5% or more in a financial year. Further Regulation 4 gets triggered, if there is acquisition of control in the target company. In the current deal of MUFG-Shriram Finance, the subscription of shares of 20% of the Company is well below the threshold limit. Moreover, the deal provides for the preferential issue of new shares, which falls under the general exception of the Regulation 10(2B) of the Takeover Code, thereby MUFG is not required to make any open offer. The preferential allotment connotes that MUFG is not acquiring, rather it is infusing fresh capital in the Company.

    However, Regulation 4 of the Takeover Code prohibits the acquisition of control over the target company, irrespective of acquisition or holding of shares or voting rights in the target company without an open offer. This regulation is triggered solely on the acquisition of control, irrespective of other quantitative considerations of limits provided under the Takeover Code. Unlike other quantitative criteria under the Takeover Code, this regulation is a qualitative criterion and discretion of invocation is vested with the SEBI to gauge the requirement of open offer by the acquirer in a given facts and circumstances. Accordingly, it is necessary to analyse the scope of ‘control’ under Regulation 2(1)(e) of the Takeover Code, which broadly includes the right to appoint a majority of directors and to exercise control over management and policy decisions.. These rights can be exercised directly or indirectly by one person or more than one person who are person acting in concert. Further, such rights can accrue to a person by way of shareholding, management rights, shareholders agreements, voting agreements and in any other manner. The definition of control under the Takeover Code has been reviewed many a times and it has been left as it is to be decided by SEBI on the basis of each case. Firstly, the Bhagwati Committee, constituted in 1995 to review the old SEBI Takeover Code of 1994, recommended the broad definition and opined that it should be left to SEBI to decide basis each case. Further, the Takeover Regulations Advisory Committee (“TRAC”), in its report dated July 19, 2010, reiterated the same views, and currently, the same definition is there in the Takeover Code.

    Later, to determine the Brightline test for acquisition of control the SEBI floated a discussion paper on March 14, 2016 to seek comments of the public, pursuant to representations made by the market participants to provide guidance in respect of protective rights which would not amount to acquisition of control. Protective rights are negative in nature and aim to safeguard an investor’s interests, such as veto rights over fundamental matters like changes to charter documents, capital structure, or related party transactions. As they do not permit involvement in day-to-day management or policy decisions, they are generally not treated as ‘control’. However, rights enabling influence over management, appointment of key personnel, or business strategy may amount to acquisition of control. After receiving a number of comments from various stakeholders, the SEBI, in its press release dated September 08, 2017, decided to continue with the existing extant definition of acquisition of control in the Takeover Code, while observing that “any change or dilution in the definition of acquisition of control would be having far-reaching consequences since similar definition of control exists under the Companies Act, 2013 and other laws”.

    PROTECTIVE RIGHTS OR PARTICIPATORY CONTROL?

    Now looking at the MUFG-Shriram deal, the deal involves three key aspects: the right to second six personnel to the Company, an anti-dilution clause, and certain reserved matter protections. These elements need to be examined in light of the existing definition of ‘control’ as consistently interpreted by committees and SEBI over the past two decades.. As per proxy advisory firm Stakeholder Empowerment Services (‘SES’), right to second six appointments would amount to management influence in substance. SES’s report notes that these secondees’ role is unknown and are going to operate inside the management, such strategic presence goes beyond arm’s length oversight. SES further notes that with anti-dilution rights and reserved matters protections, MUFG wields strategic influence over key decisions where its concurrence would be required, thereby elevating its position from a passive investor to that of gatekeeper of strategic decisions. Thus, question arises as to whether such strategic investors would be considered to have gained only protective rights or participatory rights making the case for open offer under the Takeover Code?

    In SEBI v. Subhkam Ventures Private Ltd., (“Subhkam Ventures”) the Supreme Court (the ‘SC’) intervened to define the definition of control but failed to give any decisive guidance and left the question of law open, while clarifying that Securities Appellate Tribunal’s (the ‘SAT’) order would not be treated as precedent. In this case, the SAT met with a situation wherein the acquirer sought to acquire 19.91% stake of the target company.  It held that right to nominate one director from a group and along with veto rights would not constitute control. Para 8 of the SAT order is worth mentioning, wherein it held that “list of protective matters provided from clause 9(a) to 9(o) are not in nature of day-to-day operational control over the business of the target company. So also, they are not in the nature of control over either the management or policy decisions of the target company”. Further in the para, the SAT held that requirement of affirmative vote in appointment of key officials of company like CS, CEO, CFO, COO etc., would not amount to control as it cannot get its candidate appointed.

    Applying the reasoning of para 8 of the SAT’s order in Subhkam Ventures, the present deal raises an important issue, whether the right to nominate or second six representatives to the Company’s management amounts to ‘control’. In Subhkam Ventures, the acquirer only had affirmative voting rights, which did not ensure actual appointment. In contrast, MUFG appears to have a direct right to place its representatives within the management, giving it a more active role.

    In my view, this difference matters. Having multiple representatives inside management can allow MUFG to influence business decisions and the day-to-day functioning of the Company. This goes beyond mere protective rights and moves closer to participatory control. Therefore, these rights may not fit within the limited scope of protective rights recognised in Subhkam Ventures and instead point towards a degree of de facto control.

    CONCLUSION

    Apparently, the deal ticks all the regulatory boxes. The investment remains below the 25% threshold, it may claim exemption under Regulation 10(2B), got the shareholders’ approval, and disclosures have been carefully made. On paper, there is little to object to. But transactions do not operate on paper alone. When the arrangement is examined as a whole, including board nomination rights, extensive managerial secondments, veto driven reserved matters, and substantial side deal of $200 million to the promoters in the guise of non-compete fee, a more complicated picture of the deal. Such engineered arrangement’s influence that may not cross the numerical definition of control, yet significantly reshapes who holds real power within the Company.

    India’s takeover framework was never intended to function as a mere checklist. Regulation 4, read together with the deliberately broad definition, reflects conscious regulatory choice. SEBI was empowered to look beyond formal shareholding percentages and examine where influence is acquired in substance. The central inquiry was always meant to be who effectively directs the affairs of the company. The MUFG-Shriram deal sits in an uncomfortable space. It may not amount to a classical transfer of control, but it also places MUFG far beyond the position of an ordinary financial or even conventional strategic investor. At the same time, the promoters receive economic benefits, particularly through the non-compete consideration, that dilute the parity principle embedded in the open offer regime. This principle is meant to ensure that all shareholders receive an equal opportunity when control or near control shifts.

    For minority shareholders, this creates a structural vulnerability. Their protection exists in law, but their effectiveness becomes uncertain in complex and heavily engineered transactions. Therefore, the real question is not whether the MUFG-Shriram deal complies with the letter of law. The deeper and more troubling question is whether the law, as it is currently interpreted and enforced, remains capable of capturing control in its modern and increasingly nuanced forms. The lack of a clear regulatory response to this question is what should concern regulators and market participants alike.

  • Recalibrating ETF Price Controls: SEBI’s Proposals on Base Price and Price Bands

    Recalibrating ETF Price Controls: SEBI’s Proposals on Base Price and Price Bands

    By Kavya Jindal, Third-year Student at NLUO, Cuttack

    INTRODUCTION

    Exchange Traded Funds (‘ETFs’) have a distinct place in the Indian capital markets. Despite being similar to mutual fund schemes, they can be bought and sold in the stock exchange market as regular stocks would. The value of the ETFs is based on the underlying asset, which could be equity index, debt instruments, or commodities. In light of the same, the Securities and Exchange Board of India (‘SEBI’), on 1 February 2026, released a consultation paper (‘the Paper’) putting forth major reforms to the mechanism that governs base price determination and price bands for ETFs.

    These reforms are prompted by the structural inefficiencies and heightened volatility primarily in gold and silver market, which have been consistently witnessed over the past few months. SEBI’s proposals show an inclination towards a more dynamic regulatory system based on data. This blog discusses the structural changes recommended in the Paper and their impact on ETF markets. It further analyzes the extent to which these recommendations can solve the problem of volatility, price discovery in the market and strengthening market stability.

    KEY STRUCTURAL CHANGES PROPOSED

    Revision of base price determination

    The price bands for ETFs, under the existing framework, are calculated using the Net Asset Value (‘NAV’) of T-2, which is two trading days prior. This model leads to an inherent lag and does not rightly capture latest market developments. Therefore, SEBI has proposed shifting to T-1 reference values for determination of the base price on the trading day.

    Multiple alternatives have been outlined in the Paper for such determination. These include: firstly, usage of T-1 closing traded price of the ETF, calculated as the weighted average price of the last 30 minutes of trading; secondly, the T-1 closing NAV, where it is available in time; thirdly, the average indicative NAV (‘iNAV’) of the last 30 minutes on T-1; lastly, the latest available iNAV on T-1. All of these alternatives aim to balance timelines with reliability.

    Rationalisation of price bands

    The present regulatory framework prescribes a fixed price band of ±20% for most ETFs and ±5% for overnight ETFs. SEBI has now proposed to move away from this one-size-fits-all approach by introducing differential initial price bands based on volatility profile of different ETF categories.

    For equity and debt ETFs, the Paper introduces an initial price band of ±10%. This will include the possibility of flexing upward to ±20% during the trading day.  For commodity ETFs, specifically gold and silver ETFs, a narrower initial band of ±6% is proposed. This reflects their association with global markets for commodities as well as derivatives and the inclusion of price limit adjustments in stages. Also, given the very low volatility associated with overnight ETFs, they will still remain subject to the existing ±5% price band. The different approach seeks to ensure that the permitted intraday price fluctuation is closer to reality.

    Introduction of a flexing mechanism

    The proposal of a dynamic flexing system appears to be a very important one. Instead of having a rigid range throughout the day, the initial band of ±10% or ±6%, in the case of equity/debt and commodity ETFs, respectively, can be extended after its threshold has been breached. After that point, there would be a temporary suspension of transactions until stability has been restored in the market.

    CRITICAL ANALYSIS AND IMPLICATIONS

    Base price reform: addressing the 1-day lag

    Under the existing system, ETF price bands are determined using the closing NAV from T-2 (two days earlier). This inherently creates a one-day informational lag. This approach most likely appears to stem from operational limitations and time needed to disclose NAVs. However, relying on an outdated reference point has created structural lags and thereby contributed to heavy instability and increased volatility in the market. Due to this, there are chances of distortion of price alignment between ETFs and their underlying assets.

    This may even affect the efficiency of arbitrage and thus affect the process of price discovery. The whole idea of arbitrage lies in the trader’s ability to exploit small differences between the ETF and its underlying asset. Since the NAV is determined using outdated data that does not represent current market values, arbitrage becomes difficult and allows prices to remain at a difference for longer than expected.

    In the case of commodity ETFs, this becomes extremely serious since there is always a disparity in global prices all the time depending on time zones. Before the Indian market responds, the reference NAV would have become out of date, hence contributing to increased volatility and mispricing. Dividends and bonuses from corporations may need a manual update to the NAV, which poses challenges and makes it prone to mistakes. In today’s electronic markets, there is a need for quick processing and adjustment of prices according to new information. It is important to note that through automation, information on NAV is automatically updated without any manual input whatsoever, which reduces chances of delay or inaccuracies.

    The transition to T-1 reference values in terms of NAV can be extremely effective in ensuring a greater degree of informational symmetry. With regards to ETF pricing, the transition will provide a more accurate estimate of the intrinsic value of ETFs. This would ensure that there is a greater degree of alignment with reality and that there would be a lower level of volatility due to outdated information.

    However, using iNAV also presents certain challenges. Being an indicative measure, it could sometimes present outlier estimates of prices. In order to address this, SEBI must consider this risk when implementing any change towards real-time data usage. In any case, the new reform would likely lead to a more aligned relationship between ETF prices and the underlying asset values.

    Price band rationalisation: from static to dynamic controls

    Most ETFs, up till now, operate under a uniform ±20% daily price band, irrespective of underlying volatility. The empirical data cited by SEBI reveals that over 90% of equity and debt ETFs fluctuated within 10% in a trading day. Commodity ETFs on the other hand, remained broadly within 9%. Thus, the 20% band seems too wide when compared to the actual trading behaviour. There are differences in volatility profiles across ETFS, which is the primary issue with uniformity as it disregards these differences. A static band of 20% fails to reflect both, the empirical evidence and market structure. This in a way allows excessive price fluctuations which are not connected to the underlying fundamentals.

    Introduction of initial ±10% (equity/debt) and ±6% (commodity) bands will better align regulatory thresholds with empirical data. This adjustment holds the potential to curb excessive market speculation and strengthen investor confidence. Further, this could also support more orderly price discovery by limiting sharp intraday fluctuations.

    However, cooling-off pauses may occur more frequently if the limits are reached often. This could affect market liquidity. Market participants must adapt to a system where volatility management is more nuanced and data driven, instead of uniformly permissive.

    Controls the flexing mechanism: stability vs. trading friction

    The flexing regime is an important innovation. Once the initial range of prices is attained, there will be a pause/cooling-off period of about 15 minutes. The range will expand in stages once the necessary thresholds have been achieved. The idea here is to differentiate between price discovery and possible manipulation. By linking any relaxation of limits to adequate market depth and participation, SEBI aims to introduce surveillance into the market structure itself.

    The complexity involved in implementation cannot be ignored cannot be overlooked, regardless it being theoretically efficient and accurate. For controlling the thresholds of trading and making necessary adjustments, it is important to have proper technology. Frequent intraday pauses can lead to many problems for institutional traders and disrupt algorithms used in trading. Also, the activities of arbitrageurs, who help to keep the ETF price stable and in line with the price of underlying assets, may become limited during cooling-off periods. The activities of arbitrageurs include purchasing an under-valued asset and selling an over-valued one in order to correct the discrepancy between the ETF price and the price of underlying assets. However, due to restrictions imposed on trading, it becomes impossible for arbitrageurs to conduct their operations.

    Therefore, the flexing mechanism if executed effectively, has the potential to enhance systemic resilience while preserving price discovery integrity. This indicates a regulatory shift towards dynamic circuit controls.

    Commodity ETFs: global linkages and regulatory sensitivity

    Gold and silver ETFs are uniquely sensitive to international price movements. Global commodity markets operate across time zones. Indian exchanges on the other hand, function within fixed trading hours. In January-February 2026, primarily, such heightened volatility brought out the incompetency of the T-2 based system and exposed its weakness.

    To put forth an example, Gold ETFs plunged sharply by almost 7% in a single session and overall witnessed a drop of around 18% from their peak on 29 January, 2026. Likewise, Silver ETFs faced extreme volatility with many hitting almost the 20% lower circuit, even though their actual decline during the season was around 10-15%. These extreme disruptions were primarily triggered by sharp movements in global markets. On one day, international spot gold prices dropped by 10%, and silver prices crashed nearly 30% in a single day. Both of them indicative of one of the steepest and worst declines on record. 

    In light of the same, the proposal by the SEBI to introduce an initial ±6% band brings commodity ETFs in line with the overall daily price limits applicable to derivate contracts. Permitting the band to expand in increments of 3% posits sensitivity to movements in global prices, simultaneously, also maintaining an overall cap of 20%.

    This approach promotes coherence and integrity across trading segments. However, if the band expands too frequently, there is also a possibility of enhanced intraday halts especially in volatile global scenarios. Therefore, the proposals if executed should be done with utmost precision, so that the intended motive can be achieved.

    Broader market implications

    The proposals also carry with them implications beyond technical rectifications. Narrowed initial bands at the initial stage along with cooling-off periods will most likely enhance protection for retail investors, against sudden volatile spikes, as has been aimed rightly. Further, for Asset Management Companies (‘AMCs’) improved alignment curtails reputational risk arising from price-NAV derivations. Exchanges benefit from more structured volatility management tools.

    However, arbitrageurs and institutional traders must necessarily adjust to possible trading halts and conditional relaxation of the bands. Over time, if properly implemented, such regulatory changes will contribute to more disciplined behaviour and minimize the impact of speculation within the market. From a systemic perspective, the regulatory changes constitute an example of preventive regulation designed to rectify inherent inefficiencies that might otherwise lead to instability within the market system.

    CONCLUSION AND WAY FORWARD

    The paper can be seen as an illustration of a shift towards a recalibration of ETF markets. Of the possible choices of base price, it may be more sensible, commercially speaking, to use the closing price traded or closing NAV at T-1 than using the latest iNAV as it is vulnerable to outliers. Moreover, it would make sense to introduce the changes in phases, specifically when dealing with commodity ETFs. This would allow the market players to adjust to the new system without difficulty. To conclude, the shift from the strict 20% band to the more fluid and contingent system represents a major step forward in terms of regulation. The effectiveness of such a move would depend not only on its design but also on how well it is implemented and enforced.

  • RETHINKING REJECTION OF POST-LCD ADJUDICATED CLAIMS IN LIQUIDATION UNDER THE IBC

    RETHINKING REJECTION OF POST-LCD ADJUDICATED CLAIMS IN LIQUIDATION UNDER THE IBC

    BY MUSKAN JAIN, QAZI AHMAD MASOOD, FOURTH – YEAR STUDENTS AT RAJIV GANDHI NATIONAL UNIVERSITY OF LAW, PUNJAB

    INTRODUCTION

    Consider an example of a defective product in which a consumer seeks a refund before a store shuts, but the defect is detected after closing, and the refund is not given. This seems unjust since the right had existed before; it was just delayed in being confirmed. The same problem occurs with insolvency. The number of claims is usually decided on the Liquidation Commencement Date (‘LCD’), but liabilities like taxes, regulatory fines, or damages under contract are usually determined later by adjudication. This raises the key question: If the underlying right arose before the LCD but the amount was determined later, should the claim be rejected? This article examines this issue.

    The article explores whether the judicial trend to annul claims brought forward after the LCD, as observed in the recent case of SEBI v. Rajiv Bajaj, is in line with the statutory provisions of the Insolvency and Bankruptcy Code, 2016 (‘IBC’ or the ‘Code’) or not. It challenges the National Company Law Appellate Tribunal (‘NCLAT’), which focuses more on the LCD as a rigid cut-off, which does not involve claims like tax demands or regulatory penalties due to pre-liquidation activity.  The article argues that this rigidity undermines the Code’s broad definition of “claim,” the liquidator’s power to estimate unliquidated liabilities, and the continuation of proceedings during liquidation.

    RECOGNITION OF PRE-LCD CLAIMS AND POST-LCD QUANTIFICATION UNDER THE IBC

    Section 3(6) of the IBC broadly defines a claim as a right to payment, which can include disputed, contingent, or unliquidated sums. Consequently, there can be a claim even in cases where the amount remains undecided or is in the process of adjudication. The Code distinguishes between the existence of a right to payment and subsequently ascertaining its value, i.e., a liability may be incurred by pre-LCD events even though the value is determined subsequently.

    Section 33 provides that the liquidation commences following the failure of the Corporate Insolvency Resolution Process (‘CIRP’), marking the LCD. Creditors submit claims before the liquidator under Section 38, which he validates and either admits or rejects under Sections 39–40. Although the courts tend to consider the LCD as a cut-off for certainty in the distribution, the Code does not prohibit later quantification of liabilities generated out of pre-LCD obligations.

    Section 33(5) further permits the statutory proceedings to be instituted against a corporate debtor (‘CD’) in liquidation with the sanction of the adjudication authority. This reflects realism in the law as regulatory, taxation, and arbitral procedures are frequently multi-staged and cannot be terminated when liquidating. Parliament authorised the tribunals to determine the continuance of such proceedings instead of requiring termination at the LCD. The contradiction of doctrinal nature appears in the cases when the proceedings are permitted to proceed, and yet their results are not considered in the liquidation estate. This issue surfaced in SEBI v. Rajiv Bajaj, wherein the proceedings were permitted, yet their outcome had no distributive effect.

    This has two effects: the license granted in Section 33(5) turns out to be largely illusory, and jurisprudence turns inconsistent, in that the issue of liability can be established, but has no distributive effect. A logical approach involves dealing with claims on grounds of their pre-LCD nature and dealing with post-LCD quantification by use of liquidator estimation under Regulation 25, provisional admission of claims, and escrow or holdback provisions. In the absence of such harmonisation, Section 33(5) risks permitting adjudication in form and not in economic substance.

    THE NCLAT APPROACH: FREEZING LIABILITIES AS ON LCD AND THE CONCEPTUAL ERROR OF CONFUSING THE EXISTENCE OF A CLAIM

    The jurisprudential challenge with the dogmatic doctrine of LCD-freeze is that it confuses three analytically separate terms of existence, crystallisation, and quantification of liability. Liability arises due to the actions of the debtor- breach of contract, violation of the statutes, torts, or violation of regulations. Crystallisation is a process through which the liability is formally confirmed by the court or authority, whereas quantification is the process through which the numerical value of the owed amount is established. These phases can both be sequential and non-constitutive.

    Adjudication does not create liability; it acknowledges and ascertains it. A claim can thus exist even if contested, conditional, or even unquantified. Handling the absence of adjudication as the lack of liability replaces procedural timing with substantive existence. Following this logic, the amount of taxes payable, penalties, or regulatory fees based on the discovery of the LCD is exempt on the basis that the liability did not exist earlier.

    Such an approach was observed in SEBI v. Rajiv Bajaj, wherein the liquidator declined the claim by SEBI to impose a penalty of 21.80 lakh, since this penalty was imposed after the LCD. The court of appeal ruled that only claims crystallised as they were on the LCD can be admissible under Regulations 12(2)(a) and 13 of the Insolvency and Bankruptcy Board of India (‘IBBI’) (Liquidation Process) Regulations, 2016. However, this fails to appreciate a crucial distinction, which is the fact that the existence of liability and its quantification are distinct. A claim can already exist where the wrongful conduct preceded the LCD or proceedings were already started before the LCD, or the final amount was not obtained due to procedural delays.

    The equation of “unadjudicated” with “non-existent” eliminates contingency liabilities and makes legitimate pre-LCD obligations disappear, distorting the true financial status of the CD. A doctrine that ties the existence of claims to post-facto crystallisation makes insolvency a matter of procedural finality as opposed to substantive accounting of rights. The rigorous LCD crystallisation method thus favours the time of adjudication, rather than the juridical content of liability, and is conceptually limited and practically rigid.

    REASONS AGAINST THE NCLAT POSITION

    The institutional issues underlying the LCD-freeze approach cannot be dismissed on the basis of doctrinal criticism only. The need for finality is the best argument. Liquidation is a time-bound process aimed at realising and distributing assets with predictability, allowing continually changing liabilities risks to delay closure and undermine commercial certainty. Intimately linked here is the inability to estimate complex or speculative claims, including contingent tax liabilities, regulatory fines, or litigation-based damages, which might be beyond the knowledge of the liquidator and lead to arbitrary valuations or exaggerated claims.

    Another concern is the potential destabilisation of the distribution waterfall. When liabilities after LCD are recognised following interim or final distributions, the previously paid dividends may need to be recalculated, which interferes with predictability and creditor confidence. An effective administrative burden exists, as well, in the fact that the liquidator can only realise and distribute assets, and not make specialised forensic decisions as to liability.

    It is not a question of absolute finality and unrestricted uncertainty, but one of moderated inclusion and categorical exclusion. Rejection of post-LCD claims is disproportionate. The middle ground is in the estimation mechanisms under tribunal control and backed by safeguards, which is more efficient, fairer, and more practical to the institution.

    OVERLOOKING REGULATION 25: POWER TO ESTIMATE CLAIMS

    This strictness of the exclusion of claims that are measured following the Liquidation Commencement Date ignores a vital stipulation in the liquidation apparatus Regulation 25 of the IBBI (Liquidation Process) Regulations, 2016. The provision recognises that insolvency often involves liabilities whose value cannot be precisely determined and therefore requires the liquidator to estimate claims where the amount is uncertain due to contingency or other reasons. The language is significant. The regulation compels the liquidator to find a reasonable value for which no exact quantification can be made by applying the term shall estimate. It does not permit rejection just because a claim is contingent, contested, or even under adjudication.

    The provision is an assumption of the structure of the Code: liquidation should occur even in the case of uncertainty. Estimation is the institutional process by which this uncertainty is dealt with without eliminating legitimate liabilities. Practically, estimation can be based on objective references like the statutory penalty list, precedents of similar cases, the role of the proceedings, documentary evidence, or the opinion of experts. Conservative/range-based valuations can maintain distributional certainty, but they need to be sure that the liquidation estate captures the potential liabilities.

    The failure to observe Regulation 25 thus distorts the concept. The consideration of the lack of final adjudication as a reason to be rejected makes it practically impossible to make the pre-liquidation liabilities invisible. In addition, a harsh freeze of LCD can serve as a motive to take a strategic pause in the regulatory or statutory action in such a way that the liabilities do not become crystallised until the liquidation begins. Well used, Regulation 25 can prevent such a result by permitting provisional recognition of pre-LCD liabilities, which would provide a balance between procedural finality and substantive fairness.

    A targeted amendment to Sections 38 and 40 of the IBC that clearly distinguishes between the existence of a claim rooted in pre-LCD conduct and its quantification occurring post-LCD would be another structurally sound solution like Regulation 25. This strategy is supported by comparative frameworks to accommodate contingent and uncertain liabilities without sacrificing distributional certainty. Rule 14.1 of the UK Insolvency (England and Wales) Rules, 2016 anchors claim admissibility to the origin of the obligation rather than the date of its formal determination. A similar statutory clarification in the IBC would resolve the doctrinal ambiguity at its source, lending legislative backing to what Regulation 25 currently achieves only at the regulatory level.

    CONCLUSION: TO A STILL MORE SENSITIVE DOCTRINE

    Going back, lastly, to the store shop metaphor. One of the customers requested a refund for the defective product; the defect was verified after the shutters were closed. There is no defence of refusal to grant a refund in that case, amounting to refusal to serve in defence of discipline, but on refusal of fairness, as the operative condition, timely ordering, was fulfilled. The insolvency law is faced with a similar dilemma. Where the pre-liquidation conduct results in regulatory, contractual, or statutory proceedings, but does not end until the LCD, the timing of adjudication is usually institutional, as opposed to creditor-driven. The omission of these claims by the reason that they are quantified after LCD raises the distributive accident to the distributive entitlement and deforms the design of the Code.

    The answer is not a very strict exclusion but a moderate inclusion. The claims that are based on the pre-LCD conduct are to be acknowledged as the true financial status of the debtor, despite the fact that the value of the claims has not been resolved yet. The liabilities may rather be within institutional protection, as the structure already takes into consideration. Under Regulation 25, such as estimation, the liquidator is able to value a business at a reasonable amount in the event that quantification is yet to be undertaken. Correctly used, these instruments maintain both finality and equity, such that valid commitments are not killed just due to the fact that their exact worth had made it onto the stage too late in the process.

  • Consolidation Without Safeguards: Analyzing the SEBI FPI Master Circular

    Consolidation Without Safeguards: Analyzing the SEBI FPI Master Circular

    BY KHUSHI JAIN AND UJJWAL GUPTA, SECOND – YEAR STUDENT AT DR. RAM MANOHAR LOHIYA NATIONAL LAW UNIVERSITY, LUCKNOW

    INTRODUCTION

    On 5 December 2025, the Securities and Exchange Board of India (‘SEBI’) issued a Consultation Paper on Review of Master Circular for Foreign Portfolio Investors (‘FPIs’) and Designated Depository Participants (‘DDPs’) (‘Consultation Paper’) proposing the consolidation of the existing consultation paper. This paper aims to streamline hitherto fragmented regulations by consolidating multiple circulars and guidelines into a single instrument. Through the Consultation Paper, efforts are made to revise disclosure and compliance for FPIs and DDPs, beneficial ownership norms, compliance obligations and the role of intermediaries.

    This piece first sets out the key changes introduced through the consolidation. Second, the impact of these changes is analysed on various stakeholders including FPIs and DDPs. Third, key concerns arising from the proposed structure are identified. Towards the end, the Indian approach within a comparative cross-jurisdictional regulatory perspective is discussed. The piece is concluded by offering plausible reforms to address the aforementioned concerns so as to preserve efficiency and accountability.

    KEY PROPOSED CHANGES

    The regulations of FPIs are governed by a layered statutory framework under the SEBI Act 1992, SEBI (Foreign Portfolio Investors) Regulations, 2019 (‘2019 Regulations’) and SEBI Master Circulars and Operational Guidelines. The Consultation Paper would reshape the enforceability provisions of FPI regulation.

    Prominently, the Consultation Paper proposes a comprehensive consolidation of multiple circulars, FAQs, and interpretative notes into a single revised Master Circular governing FPIs and DDPs. It operates as de facto subordinate legislation. Building on this, Regulation 4(c) of the 2019 Regulations mandates FPI to disclose beneficial ownership in accordance with the Prevention of Money Laundering Act, 2002 and Financial Action Task Force Recommendations. The Consultation Paper strengthens look-through obligations and identifies natural persons exercising “ownership or control” in a multi-layered investment structure.

    Substantiating on the above provisions, DDPs are provided with registration-related functions and limited ongoing oversight through Regulation 12 of the 2019 Regulations. The Consultation Paper rather shifts their role to frontline regulatory gatekeepers. It inculcates their responsibility for continuous validation of their compliance, enhancing due diligence on FPIs. They are supposed to develop Standard Operating Procedures (‘SOPs’) for validation, real-time monitoring of validation tools such as corporate group repositories, and freeze codes, straining systems under tight timelines like 7-Day Type I change notification.

    This fundamentally extends the disclosure, reporting, and compliance requirements for FPIs by way of more frequent reporting, monitoring and verification of investor information on a continuous basis, and ongoing compliance certification requirements.

    STAKEHOLDER IMPACT ANALYSIS

    There will be asymmetric effects of the proposed changes among the different groups of stakeholders. The changes redistribute regulatory risks and operational burden, having several unintended effects regarding market depth and stability.

    The compliance architecture model can disproportionately affect the passive institutional investors like pension funds and sovereign wealth funds because their investment approach is long-term and non-controlling in essence. Lack of any provision on punitive measures for transitional non-compliance can create considerable legal and commercial uncertainty for market participants. This could result in sudden FPI exits, higher cost of capital for Indian issuers, and higher volatility in the secondary markets, thereby violating Section 11 of the SEBI Act, 1992.

    The Consultation Paper enhances the supervisory authority of SEBI, that could earlier detect concentrated or opaque market positions. However, it also increases institutional dependence on delegated supervision by DDPs, raising coordination and accountability challenges. SEBI may face allegations of inconsistent enforcement or excessive discretion.

    Lastly, the framework may influence volume, composition and stability of foreign capital flows from a market-wide perspective. It relaxes International Financial Services Authority-based FPIs, allowing up to 100% Non-resident Indians/ Overseas Citizens of India/ Resident Indian  participation under strict conditions like pooling, diversification (e.g., no more than 20% in one Indian entity), and independent managers. Foreign institutional investments in the long term may be discouraged due to increased complexities in complying with the debt and equity portions that are expected to be supported by foreign investments. Foreign passive institutional investors may decrease the overall efficiency of the market as a result of less participation in the secondary markets.

    KEY CONCERNS

    Consolidation would result in the conversion of interpretative guidance into mandatory compliance and the expansion of enforceable obligations without any amendment to the 2019 Regulations. It dilutes the effect of delegated legislation principles. Many provisions function as soft law and are not binding rules under Section 30 of the SEBI Act. Thus, the consolidation would make them a binding compliance standard, transforming advisory norms into enforceable duties.

    Moreover, unlike regulations, circulars are not subject to safeguards like legislative scrutiny. Consolidation would thus advance the power of SEBI to alter the compliance structure without any amendment. Consequently, it would also amend the scope of provisions through drafting techniques. Conditional, context-specific, or risk-based obligations are inculcated into general obligations that are to be applicable across the FPI ecosystem. The Consultation Paper could result in omission of caveats and qualifiers. It would broaden the regulatory net without re-examining the substantive framework set out in Regulations 4 and 22 of the 2019 Regulations.

    Furthermore, the Consultation Paper fails to address the doctrine of regulatory equivalence for entities domiciled in jurisdictions that are FATF-compliant. Contradicting the proportionality test, already regulated foreign investors can duplicate and disproportionate disclosure burdens.

    The expansion of the ambit of DDPs leads to regulatory outsourcing. However, it neither ensures any statutory immunity nor delineates liability in erroneous determinations or misclassification of risk. It raises pertinent concerns regarding liability attribution.

    Concerns about constitutional guarantees under Article 19(1)(g) and 19(6) are also raised. Serious concerns about ex post facto interpretation can also exist due to the absence of procedural safeguards of supervisory discretion. It may implicate the principles of audi alteram partem and predictability of the rule of law in financial regulation under the capital regime in India.

    For measures that limit market access, the SEBI Act has laid down a specific procedure to be followed. This includes the requirement that the actions under Section 11B, penal measures under Section 15-I, and suspension or cancellation under Section 12(3) all need a well-reasoned order, prior hearing, adherence to principles of natural justice, and can be challenged in the SAT under Section 15T. As opposed to this, the draft Master Circular for Foreign Portfolio Investors (FPIs) and Designated Depository Participants (DDPs)  (‘Master Circular’) allows trading restrictions via intermediary-led SOPs, without SEBI adjudication, hearing, or an order that can be appealed, and thus sidesteps essential safeguards given in law.

    CROSS-JURISDICTIONAL ANALYSIS

    In the United Kingdom (‘UK’), disclosure or Anti-Money Laundering (‘AML’) failures of foreign investment entities are dealt with by the Financial Conduct Authority through a formal enforcement procedure. Usually, non-compliance leads to supervisory engagement and, if necessary, formal enforcement proceedings initiated by a warning notice. The impacted entities can make representations before an adverse decision is taken against them, and the final decisions are made by the independent Regulatory Decisions Committee. Market access restrictions or licence limitations only arise from a reasoned decision that is subject to appellate review by the upper Tribunal. Unlike as contemplated under the Master Circular, coercive market access restrictions in the UK cannot be imposed by intermediaries and remain exclusively within the Financial Conduct Authority’s (‘FCA’) adjudicatory enforcement process.

    The European Union (‘EU’) framework for portfolio investment compliance operates through MiFID II and anti-money laundering directives. MiFID II does not prescribe automated investor account blocking for Know Your Costumer (‘KYC’) non-compliance; rather, it gives national competent authorities supervisory and investigatory powers, whilst any limitation on market participation must be derived from national law or the trading venue rules. The AML system requires customer due diligence and allows firms to suspend transactions as part of their internal compliance controls. Moreover, when a public authority orders a restriction, the measure is governed by the national procedural law which transposes EU directives and is further guaranteed fundamental procedural safeguards, such as the right to challenge administrative measures before an independent body, and not outsourced to intermediaries.

    In Singapore, the Monetary Authority of Singapore (‘MAS’) supervises AML and disclosure compliance under the Securities and Futures Act through a risk-based supervisory framework. MAS deals with KYC or disclosure breaches by means of supervisory engagement, directions, penalties, or license-related action after the determination of the breach. Automatic trading suspensions or market access suspensions are not usual, and any such coercive restrictions follow well-reasoned decisions to guarantee proportionality and centralised enforcement. Importantly, MAS does not give coercive enforcement powers to market intermediaries, unlike the expanded role that has been considered for DDPs.

    Viewing these jurisdictions collectively, it can be observed that greater transparency and AML compliance can be achieved without having to rely on automated market exclusion mechanisms that bypass prior notice or independent assessment. In this context, the Master Circular delineates a stricter model of regulation than what is necessary, as shown by international practice.

    CONCLUSION AND SUGGESTIONS

    Based on lessons drawn from frameworks discussed above, it is possible that India could prescribe regulatory and procedural safeguards. The following developments can work in tandem for coherent enforcement. 

    Primarily, SEBI should expressly draw a distinction that consolidation of circulars does not transform interpretive guidance or FAQs into binding compliance requirements unless issued under the 2019 Regulations or Section 30 of the SEBI Act. Along with, any provision extending substantive requirements should be brought about only through formal regulatory amendment, following the prescribed legislative safeguards.

    Second, SEBI should desist from retaining conditionality, context-specific qualifiers and risk-based caveats in existing circulars. The Master Circular should operate as an operational guide rather than a source of new general obligations, ensuring that Regulations 4 and 22 of the 2019 Regulations remain the primary substantive framework.

    Third, the consolidated framework must specifically acknowledge the concept of regulatory equivalence applicable to FPIs incorporated in FATF-compliant and well-regulated countries. The requirement of disclosure and KYC must be customized in terms of risks associated with each jurisdiction and type of investor and system significance.

    Fourth, concerning the absence of any measures to shield FPIs from penalties for non-compliance in the transition period, SEBI should provide a definite period for existing FPIs during which non-compliance resulting solely from the newly consolidated obligations shall not be penalised. This will ease both uncertainty and avert sudden market exits.

    Finally, SEBI must clearly define the scope of DDPs’ authority, provide statutory protection for bona fide actions and specify liability allocation in cases of erroneous determinations or misclassification. Coercive or market-access-restrictive decisions should remain exclusively within SEBI’s domain.  Additionally, any restriction on trading, account operations or market access must be preceded by notice, opportunity of hearing, and a reasoned order passed by SEBI under Sections 11B, 12(3), or 15-I of the SEBI Act. Intermediary-led SOPs should not substitute statutory adjudication or appellate remedies under Section 15T.

    The Consultation Paper is veritably an important step towards simplifying the regulation of foreign portfolio investment through consolidation. However, as the authors point out, said consolidation should not weaken statutory protections, proportionality, accountability, or procedural fairness under the SEBI Act and the 2019 Regulations. If there are no adequate safeguards, the draft Master Circular may, in fact, increase the compliance and enforcement burdens and consequences beyond its legal basis. Whether or not this consolidation will ultimately strengthen India’s capital markets depends on the degree of care SEBI exercises in reconciling efficiency and legality in the final framework.